December 15, 2014

By Dave Wolf, Adv. & Mirit Reif, Adv.

Introduction:

So you made aliyah and settled in Israel. Most of you still have assets in your prior country of residence, especially bank accounts. As the world becomes increasingly globalized, it is becoming easier for taxpayers to make, hold and manage investments through financial institutions worldwide. Vast amount of monies are kept offshore and are untaxed even within the taxpayer’s home jurisdiction. Offshore tax evasion is a serious problem for countries all over the world. Therefore, they have a shared interest in cooperating with each other against tax evasion. One way to fight tax evasion is through the exchange of information between countries.

FATCA:

The catalyst for the recent developments in U.S. law is called FATCA (the Foreign Account Tax Compliance Act). Under FATCA, non-U.S. foreign financial institutions (banks, hedge funds, pension funds, insurance companies, etc.) are required to report to the U.S. tax authorities (the IRS) information regarding accounts held by U.S. taxpayers or by foreign entities in which U.S. taxpayers hold substantial ownership interest, i.e., 10%. Failure to do so will result in a U.S. withholding tax of 30% on most U.S.-sourced income payments to the foreign financial institution.

The first deadline for filing FATCA information reports with the IRS by Israeli foreign financial institutions is September 30, 2015. This will cover the 2014 tax year. As of now, 44 countries have signed agreements implementing FATCA and an additional 57 countries have reached agreements in substance with the U.S. government.

Exchange of Information Agreements:

Since FATCA, there have been various initiatives by a growing number of countries and organizations. It is their intention to strengthen and further develop the automatic exchange of tax information agreements in order to improve international tax compliance. Automatic exchange of information involves the transmission of taxpayer information by the source country to the resident country concerning various categories of income and other types of useful information such as changes of residence and the purchase or disposition of real estate.

On October 29, 2014, the finance ministers of approximately 50 countries met in Berlin and signed a Multi-Lateral Competent Authority Agreement which will designate which institution in each country is responsible for transferring tax data to other member states. Under the agreement, information on new accounts and pre-existing individual high-value accounts will be exchanged by the end of September 2017. All other account information will be exchanged by the end of September 2018.

Sixty-five jurisdictions have already agreed on implementing this global standard for the automatic exchange of information between tax authorities. Included among these 65 jurisdictions are many countries which have citizens living in Israel such as the U.S., the UK, Switzerland, Belgium, Canada, Chile, Mexico, Argentina, South Africa and France. As a result of this agreement, banking information will now flow from and to these countries.

Conclusion:

Worldwide efforts to combat tax evasion and do away with banking secrecy are bearing fruit. Over the past two years, under voluntary disclosure programs, over half a million taxpayers have voluntarily declared more than $37 billion in income and wealth hidden from tax authorities. The world of tax havens and stashing money away in secret bank accounts is rapidly diminishing.

People with unreported accounts, either in or out of their country of residency, should seek legal advice regarding ways to voluntarily disclose them and pay taxes on the generated income.

Contact us for more information on the Israeli Amnesty Program.

Dave Wolf, a U.S. and Israeli tax attorney, is a partner at Dave Wolf & Co. Law Firm.

Mirit Reif, an Israeli tax attorney, is a senior associate at the firm.

They can both be reached at 02-622-2335.

Dave Wolf & Co. is a law firm specializing in taxation and wealth management with offices in Jerusalem, Tel-Aviv and New York and affiliate offices in Greater China, London and Amsterdam.

The content of this article is intended to provide a general guide to the subject matter and is not a substitute for legal consultation. Specific legal advice should be sought in accordance with the particular circumstances.